View this article online: https://www.claimsjournal.com/news/southeast/2006/07/20/70639.htm
A federal judge heard closing arguments Wednesday in the first courtroom challenge of the insurance industry’s denial of billions of dollars of homeowners’ claims after Hurricane Katrina.
U.S. District Judge L.T. Senter, Jr., who heard seven days of testimony without a jury, is not expected to issue an immediate decision in the potentially precedent-setting case.
The lawsuit that Paul and Julie Leonard filed against Nationwide Mutual Insurance Co. is the first of hundreds of Katrina insurance lawsuits to be tried since the storm laid waste to tens of thousands of Gulf Coast homes last Aug. 29.
Insurers have refused to cover damage from Katrina’s rising water, citing language in its policies that excludes flood damage from coverage.
Nationwide says the flood exclusion in its policies extends to “storm surge” even though that term wasn’t written into the Leonards’ policy until after Katrina’s wind-driven water inundated thousands of homes far from flood zones.
The Leonards sued the Columbus, Ohio-based insurer for denying all but $1,600 of their claim after Katrina left their Pascagoula home with more than $130,000 in damage. An insurance adjuster and a civil engineer who testified for Nationwide said storm surge was responsible for virtually all the damage to the couple’s house, located around 500 feet from the Mississippi Sound.
The plaintiffs’ case centers on Jay Fletcher, the Nationwide agent who sold the Leonards their homeowner’s policy years before Katrina hit.
The Leonards’ attorneys argued that Fletcher misled their clients, and other many customers, by assuring them that their policy covered both wind and water damage.
Paul Leonard testified that, after Hurricane Georges hit the Gulf Coast in 1998, he asked Fletcher if he needed flood insurance and the agent allegedly told him, “You don’t need that s—.” Fletcher denied saying anything like that to Leonard, a Pascagoula police lieutenant.
Several other Nationwide policyholders also testified that Fletcher either told them they didn’t need flood insurance or convinced them that their policies covered all forms of hurricane damage.
Pascagoula chiropractor Munson Hinman said he walked into Fletcher’s office with a check to purchase flood insurance months before Katrina, but the agent talked him out of it. After Katrina, Nationwide paid Hinman more than $136,000 for the damage to his home, including damage from storm surge, even though he didn’t have flood insurance.
In his testimony this past Friday, Fletcher denied telling Paul Leonard and other customers that they didn’t need flood insurance or that their policies covered both wind and water damage. The Leonards dropped Fletcher as a defendant in the suit before the trial started.
Richard “Dickie” Scruggs, one of the Leonards’ attorneys, said meteorological and engineering evidence don’t figure as prominently in this case compared to many others still awaiting trial. Instead, Scruggs argued that Fletcher’s alleged assurances about the scope of coverage make Nationwide liable for all the damage, be it wind or water.
“The case rises and falls on that,” Scruggs said in an interview earlier this week. “The focus of this case is Jay Fletcher and his integrity versus Paul Leonard and his integrity.”
Nationwide’s attorneys have argued that the Leonards are bound by the written terms of their policy. Those terms can’t be rewritten to give them flood coverage after Katrina, they add.
Scruggs “filed a flood versus wind case, and the facts have gotten in the way of that claim,” company spokesman Joe Case said.
“They can’t make their claim on the facts surrounding the actual damage to the home,” Case added. “They’re playing musical chairs, trying to hang their case on anything other than the actual claim.”
Nationwide says it has resolved 97 percent of the 21,000 claims filed by Mississippi policyholders following Katrina and paid homeowners a total of $230 million.
A company executive testified that the insurer always looks for ways to pay claims, but falls back on the assumption that storm surge is responsible in cases where engineers can’t separate wind from water damage.
Senter is the only federal judge in Mississippi who is hearing the hundreds of lawsuits that homeowners have filed against their insurance companies for refusing to cover damage to their homes after last summer’s storm.
Scruggs’ legal team represents about 3,000 policyholders on the Mississippi Gulf Coast, including his brother-in-law, U.S. Sen. Trent Lott, R-Miss. The firm also has sued Allstate Insurance Co., Metropolitan Life Insurance Co., State Farm Insurance Co. and United Services Automobile Association.
Scruggs, who helped negotiate a landmark, multibillion settlement with the tobacco industry in the late 1990s, hopes that a victory in this case and a handful of others will pressure insurers to settle many other suits.